Understanding the risk/reward ratio is fundamental for long-term trading success. It tells you how much you're willing to risk for a potential reward. For example, a 1:3 risk/reward ratio means you're risking $1 to potentially earn $3. This ratio helps filter out low-quality trades and keeps your strategy profitable even if you're right less than 50% of the time. A good trader doesn’t just focus on how much they can make—they calculate how much they might lose. Properly managing this ratio creates consistency and helps prevent emotional trading decisions. Always trade with the ratio in mind—it’s your edge.
